Seniors navigate financial impacts of lump sum payouts on their pensions
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Receiving a significant lump sum payment, mainly due to something as unfortunate as an asbestos-related cancer diagnosis, can be a double-edged sword.
On the one hand, it provides financial relief and the opportunity to support loved ones; on the other, it can have unexpected consequences on your pension and financial planning.
Suppose you're an octogenarian about to receive a compensation payout, like the $430,000 mentioned in the query to Nick Bruining.
In that case, it's important to know that this will immediately impact your pension due to Centrelink's means testing.
The means test determines who needs a pension and can partially or fully support themselves.
When you receive your payout, you must notify Centrelink within 14 days.
Your assessable assets will include the payout plus any other assets you own, such as cars and personal belongings.
If the total exceeds the current homeowner asset test limit of $470,000 as of writing, your pension could be reduced or even cut off.
Pre-paying for your funeral is one way to reduce your assessable assets and potentially maintain your full pension. This is because pre-paid funeral costs are not counted as part of your assets for the means test.
When it comes to supporting your family, the rules of gifting apply.
You can gift up to $10,000 annually without affecting your pension, but no more than $30,000 over five years.
However, even if you stay within these limits, the gifted amount will remain on your record for five years.
It could affect your pension if your circumstances change, such as if you receive additional assets or if one partner passes away.
It's also wise to consider future expenses, such as potential aged care costs, and keep some funds in reserve for these.
In another financial tip, Nick Bruining discusses how switching life insurance to one of your superannuation fund offers could save you significant money.
Superfunds often have group insurance schemes that offer substantial discounts due to economies of scale and the absence of commission payments.
Before making the switch, compare the definitions of total and permanent disability (TPD) between your current policy and your super fund's offer.
To transfer your cover, obtain proof of your current insurance, contact your super fund's customer service team with your request, and provide the necessary documentation.
Wait for written confirmation before activating the new policy and cancelling the old one.
The financial landscape for seniors receiving a lump sum payment can be tricky.
Knowing how such a payment can affect your pension is essential, and planning accordingly is essential.
Whether pre-paying for future expenses or helping family members, understanding the rules and regulations will ensure you maximise your funds without compromising your financial security.
In other news, financial expert Nick Bruining says that self-funded retirees aged 69 might qualify for the Seniors and Pensioners Tax Offset (SAPTO) even if their assets are too high for the age pension.
To qualify for SAPTO, rebate income includes taxable income, reportable super contributions, net investment losses, and adjusted fringe benefits. All these have specific thresholds and limits, which you can read more about here.
What should individuals do to understand how lump sum payouts affect their finances? How can seniors prepare for future expenses while managing their pensions? Feel free to share your opinion in the comments below.
On the one hand, it provides financial relief and the opportunity to support loved ones; on the other, it can have unexpected consequences on your pension and financial planning.
Suppose you're an octogenarian about to receive a compensation payout, like the $430,000 mentioned in the query to Nick Bruining.
In that case, it's important to know that this will immediately impact your pension due to Centrelink's means testing.
The means test determines who needs a pension and can partially or fully support themselves.
An 80-year-old is receiving a $430,000 compensation for asbestos-related cancer and is worried about its effect on their pension. Credit: Shutterstock
When you receive your payout, you must notify Centrelink within 14 days.
Your assessable assets will include the payout plus any other assets you own, such as cars and personal belongings.
If the total exceeds the current homeowner asset test limit of $470,000 as of writing, your pension could be reduced or even cut off.
Pre-paying for your funeral is one way to reduce your assessable assets and potentially maintain your full pension. This is because pre-paid funeral costs are not counted as part of your assets for the means test.
When it comes to supporting your family, the rules of gifting apply.
You can gift up to $10,000 annually without affecting your pension, but no more than $30,000 over five years.
However, even if you stay within these limits, the gifted amount will remain on your record for five years.
It could affect your pension if your circumstances change, such as if you receive additional assets or if one partner passes away.
It's also wise to consider future expenses, such as potential aged care costs, and keep some funds in reserve for these.
In another financial tip, Nick Bruining discusses how switching life insurance to one of your superannuation fund offers could save you significant money.
Superfunds often have group insurance schemes that offer substantial discounts due to economies of scale and the absence of commission payments.
Before making the switch, compare the definitions of total and permanent disability (TPD) between your current policy and your super fund's offer.
To transfer your cover, obtain proof of your current insurance, contact your super fund's customer service team with your request, and provide the necessary documentation.
Wait for written confirmation before activating the new policy and cancelling the old one.
The financial landscape for seniors receiving a lump sum payment can be tricky.
Knowing how such a payment can affect your pension is essential, and planning accordingly is essential.
Whether pre-paying for future expenses or helping family members, understanding the rules and regulations will ensure you maximise your funds without compromising your financial security.
In other news, financial expert Nick Bruining says that self-funded retirees aged 69 might qualify for the Seniors and Pensioners Tax Offset (SAPTO) even if their assets are too high for the age pension.
To qualify for SAPTO, rebate income includes taxable income, reportable super contributions, net investment losses, and adjusted fringe benefits. All these have specific thresholds and limits, which you can read more about here.
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